Charities will increasingly have to "prove their impact" in order to receive funding, according to civil society minister Nick Hurd.
In a speech on Wednesday to mark the 20th anniversary of Charities Evaluation Services, Hurd said money was getting tighter and there was "a great deal of pressure on the sector to more effectively communicate its impact".
He said funders would become more demanding. "To be able to tell a story that doesn't just rely on anecdotes or bringing a few people into the office to tell their personal story – I'm afraid the future is going to demand more than that," he said.
"This poses great challenges, particularly for smaller organisations that don't have the resources necessary to develop complex methodologies to articulate social return."
Andy Gregg, chief executive of CES, which advises charities on how to improve their evaluation systems, endorsed Hurd's message.
"As funding pressures grow, there is an even greater need for charities to evidence the quality and impact of their work, and CES will be continuing to support charities to do that," he said.
The event marked the launch of a new CES initiative, the learning and innovation prize, which will be awarded to organisations that show how evaluating their impact has contributed to better services.
It will be judged by a panel that includes Professor Jenny Harrow of Cass Business School, Professor Helen Simons of Southampton University and Georgie Parry-Crooke of London Metropolitan University. It will be chaired by Professor Nicholas Deakin.